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Neoclassical economic theory assumes that whenever agents tackle dynamic decisions under ambiguity, preferences are represented by the Subjective Expected Utility (SEU) model and prior beliefs are updated according to Bayes rule, upon the arrival of partial information. Nevertheless, when one considers non-neutral ambiguity attitudes, either the axiom of dynamic consistency or of consequentialism should be relaxed. Using data from an economic experiment on dynamic choice under ambiguity, we study which of the two rationality axioms people violate, along with the question of whether this violation is part of a conscious planning strategy or not. The combination of the two, allows us to classify non-SEU subjects to three behavioural types: resolute, naïve and sophisticated. The hypothesis of Bayesian updating is rejected for more than half of the experimental population. For ambiguity non-neutral subjects, we find that the majority are sophisticated, a few are naïve and very few are resolute. [ABSTRACT FROM AUTHOR]

Abstract I consider static, incomplete information games where players may not be ambiguity neutral. Every player is one of a finite set of types, and each knows her own type but not that of the other players. Ex ante, players differ only in their taste for outcomes. If every player is dynamically consistent with respect to her own information structure and respects Consequentialism, then players act as if expected utility for uncertainty about types. [ABSTRACT FROM AUTHOR]

We study cheap talk communication in a simple two actions-two states model featuring an ambiguous state distribution. Equilibrium behavior of both sender (S) and receiver (R) features mixing and we relate each agent's randomization to a specific mode of ambiguous communication. For sufficiently high ambiguity, implementing the S-optimal decision rule with only two messages is impossible if R has aligned preferences. This may in contrast be possible if R has misaligned preferences. Adding a little ambiguity may generate influential communication that is unambiguously advantageous to S. [ABSTRACT FROM AUTHOR]

Abstract: Many real-life decisions have to be taken on the basis of probability judgements of which the decision maker is not entirely sure. This paper develops a decision rule for taking such decisions, which incorporates the decision makerʼs confidence in his probability judgements according to the following maxim: the larger the stakes involved in a decision, the more confidence is required in a probability judgement for it to play a role in the decision. A formal representation of the decision makerʼs confidence is proposed and used to formulate a family of decision models conforming to this maxim. A natural member of this family is studied in detail. It is structurally simpler than other recent models of decision under uncertainty, which may make it easier to apply to practical decisions, whilst being axiomatically sound, permitting the separation of beliefs and tastes, and allowing comparative statics analysis of attitudes to choosing in the absence of confidence. [Copyright &y& Elsevier]

Abstract: Several papers, adopting an axiomatic approach to study decision making under ambiguity aversion, have produced conflicting predictions about how decision makers would behave in simple dynamic urn problems. We explore the concepts of ambiguity aversion and dynamic consistency, with examples of dynamic games against nature. Basically, a malevolent nature puts balls into the urn, and a fair nature draws them out. Depending on the game, various choices that seem inconsistent with static notions of ambiguity aversion or dynamic consistency are consistent with subgame perfection. In the dynamic 3-color Ellsberg urn problem with 30 red balls and 60 blue or green balls, the decision maker could strictly prefer to bet on blue–green at time 0, and to switch to red–green after learning that the ball is not green. [Copyright &y& Elsevier]

Abstract: We study the behavior of subjects facing choices between certain, risky, and ambiguous lotteries. Subjects'' choices are consistent with the economic theories modeling ambiguity aversion. Our results support the conjecture that subjects face choice tasks as an estimation of the value of the lotteries, and that the difficulty of the choice is an important explanatory variable (in addition to risk and ambiguity aversion). The brain imaging data suggest that such estimation is of an approximate nature when the choices involve ambiguous and risky lotteries, as the regions in the brain that are activated are typically located in parietal lobes. Thus such choices require mental faculties that are shared by all mammals, and in particular are independent of language. In contrast, choices involving partial ambiguous lotteries additionally produce an activation of the frontal region, which indicates a different, more sophisticated cognitive process. [Copyright &y& Elsevier]